Budget Control Act: Potential Impact of
Sequestration on Health Reform Spending
C. Stephen Redhead
Specialist in Health Policy
February 21, 2013
Congressional Research Service
7-5700
www.crs.gov
R42051
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
Summary
The Budget Control Act of 2011 (BCA) established new budget enforcement mechanisms for
reducing the federal deficit over the 10-year period FY2012-FY2021. The BCA placed statutory
limits, or caps, on discretionary spending for each of those 10 fiscal years, which will save an
estimated $0.9 trillion during that period. In addition, it created a Joint Select Committee on
Deficit Reduction (Joint Committee) with instructions to develop legislation to reduce the federal
deficit by at least another $1.5 trillion through FY2021. In the event that Congress and the
President were unable to enact a Joint Committee bill—as turned out to be the case—then
automatic annual spending reductions would be triggered beginning in FY2013. Under the BCA,
the reductions would be achieved by a combination of sequestration (i.e., an automatic across-the-
board cancellation of budgetary resources) and lowering the caps on discretionary spending. The
President was required to order a sequestration of FY2013 budgetary resources on January 2,
2013. However, that deadline was delayed until March 1, 2013, by the American Taxpayer Relief
Act of 2012.
The potential impact of spending reductions triggered by the BCA on health reform spending
under the Patient Protection and Affordable Care Act (ACA) would appear to be somewhat
limited. ACA sought to increase access to affordable health insurance by expanding the Medicaid
program and by restructuring the private health insurance market. It set minimum standards for
private insurance coverage, created a mandate for most U.S. residents to obtain coverage, and
provided for the establishment by 2014 of state-based insurance exchanges for the purchase of
health insurance. Certain individuals and families will be able to receive federal subsidies to
reduce the cost of purchasing coverage through the exchanges. The new law included direct
spending to subsidize the purchase of health insurance coverage through the exchanges, as well as
increased outlays for the Medicaid expansion. Under the rules governing sequestration, all
Medicaid spending and most of the spending on subsidies would be exempt from any reduction,
and cuts to Medicare would be capped at 2%.
ACA also included numerous mandatory appropriations that provide billions of dollars to support
temporary programs to increase coverage and funding for targeted groups, provide funds to states
to plan and establish exchanges, and support many other research and demonstration programs
and activities. Generally, these appropriations would be fully sequestrable. However, for any
given fiscal year in which sequestration was ordered, only new budget authority for that year
would be reduced. Unobligated balances carried over from previous fiscal years would be exempt
from sequestration.
ACA is likely to affect discretionary spending subject to the annual appropriations process. The
law reauthorized appropriations for numerous existing discretionary grant programs authorized
under the Public Health Service Act, permanently reauthorized funding for the Indian Health
Service (IHS), and created a number of new grant programs and provided for each an
authorization of appropriations. In addition, the Congressional Budget Office projected that both
the Department of Health and Human Services and the Internal Revenue Service will incur
substantial administrative costs to implement the policies and programs established by ACA.
Those costs will have to be funded largely through the annual appropriations process. ACA-
related discretionary spending would, in general, be fully sequestrable.
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Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
Contents
Introduction ...................................................................................................................................... 1
Health Reform Implementation ................................................................................................. 2
Report Roadmap ........................................................................................................................ 4
Patient Protection and Affordable Care Act ..................................................................................... 4
Coverage Expansions and Market Reforms Prior to 2014 ........................................................ 4
Coverage Expansions and Market Reforms Beginning in 2014 ................................................ 5
Estimated Budgetary Impact ..................................................................................................... 6
Estimated Impact on Insurance Coverage ................................................................................. 8
Revenues.................................................................................................................................... 9
Savings from Payment and Delivery System Reforms .............................................................. 9
Potential Impact of Automatic Spending Reductions on Health Reform Spending ...................... 10
Overview of BCA’s Spending Reduction Procedures ............................................................. 10
Insurance Coverage Expansion ............................................................................................... 13
Other Mandatory Spending ..................................................................................................... 14
Discretionary Spending ........................................................................................................... 16
Federal Administrative Expenses ............................................................................................ 17
Tables
Table 1. CBO’s Estimates of the Impact of ACA on the Federal Deficit ......................................... 7
Table 2. CBO’s Estimates of the Impact of ACA on Health Insurance Coverage ........................... 9
Table 3. OMB’s Estimates of the Impact of Sequestration on FY2013 Nondefense
Spending ..................................................................................................................................... 12
Table 4. Potential Impact of the BCA’s Automatic Spending Reduction Procedures on
Health Reform Spending ............................................................................................................ 19
Contacts
Author Contact Information........................................................................................................... 21
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Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
Introduction
The Budget Control Act of 2011 (BCA), which was enacted on August 2, 2011,1 was the product
of negotiations between the President and Congress to raise the nation’s debt ceiling and avoid
the federal government reaching its borrowing limit. The BCA gave the President the authority to
increase the debt limit by at least $2.1 trillion (and up to $2.4 trillion) in three installments, and
established a process for Congress to block the second and third installments by passing a joint
resolution disapproving the debt limit increase. The President exercised this authority and raised
the debt limit by a total of $2.1 trillion to $16.394 trillion.2 In early February 2013, as the
government approached that borrowing limit, the President signed the No Budget, No Pay Act of
2013, which suspends enforcement of the debt limit and raises it on May 19, 2013, to the level of
debt accumulated to that point.3
In addition, the BCA established a process for reducing the federal deficit by at least $2.1 trillion
over the 10-year period FY2012-FY2021. First, the law placed enforceable limits, or caps, on
discretionary spending for each of the next 10 fiscal years.4 For FY2012 and FY2013, separate
caps for security and nonsecurity spending were created.5 For each of the remaining eight fiscal
years (i.e., FY2014-FY2021), a single cap for total discretionary spending was established. The
Congressional Budget Office (CBO) estimated that adhering to the discretionary spending limits,
which grow by approximately 2% each year, would reduce federal spending by $917 billion
between FY2012 and FY2021, compared to the projected level of spending if annual
appropriations were to grow at the rate of inflation.6
Second, the BCA included procedures and a timetable for enactment of a bill to reduce the federal
deficit. The law created a Joint Select Committee on Deficit Reduction (Joint Committee),
composed of an equal number of Democrats and Republicans from the House and Senate. The
Joint Committee was instructed to develop legislation to reduce the federal deficit by at least $1.5
trillion through FY2021.7 It had until November 23, 2011, to approve a bill and have it considered
by the House and Senate under special procedures that prevent amendments and limit debate in
both chambers. If, by January 15, 2012, Congress and the President failed to enact a Joint
1 P.L. 112-25, 125 Stat. 240. For a more detailed examination of all the provisions in the BCA, see CRS Report
R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan.
2 An initial $400 billion increase in the debt limit took effect immediately upon enactment of the BCA. The second
increase of $500 billion became effective on September 22, 2011, after the Senate rejected a motion to proceed to
consider a joint resolution of disapproval (S.J.Res. 25) by a vote of 45-52. Following the action taken by the Senate, the
House passed its own disapproval resolution (H.J.Res. 77) by a vote of 232-186. The third (and final) increase in the
debt limit of $1.2 trillion took effect on January 30, 2012, after the Senate once again rejected a motion to proceed to
consider a joint resolution of disapproval (H.J.Res. 98) by a vote of 44-52. Prior to the Senate’s vote, the House passed
H.J.Res. 98 by a vote of 239-176.
3 P.L. 113-3, 127 Stat. 51.
4 Discretionary spending refers to outlays from budget authority (i.e., the authority to incur financial obligations that
result in government expenditures) that is provided in and controlled by the annual appropriations acts.
5 Security spending comprises discretionary appropriations for the Department of Defense, the Department of
Homeland Security, the Department of Veterans Affairs, and other related activities. Nonsecurity spending comprises
all discretionary appropriations not included in the security category.
6 U.S. Congressional Budget Office, Analysis of Budget Control Act, August 1, 2011, http://www.cbo.gov/ftpdocs/
123xx/doc12357/BudgetControlActAug1.pdf.
7 The BCA placed no specific policy restrictions or requirements on the Joint Committee. The committee could
recommend changes in federal revenues, spending, or both.
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Committee bill reducing the deficit by an amount greater than $1.2 trillion over the period
FY2012-FY2021, then automatic annual spending reductions would be triggered beginning in
FY2013.
On November 21, 2011, the co-chairs of the Joint Committee announced that the group had been
unable to reach agreement on a legislative proposal to cut the deficit, raising the likelihood that
automatic spending reductions would be triggered.8 Under the BCA, the annual spending
reductions would be equally divided between defense spending and all other spending (i.e.,
nondefense spending).9 The amount of reduction required in each category would then be divided
proportionately between discretionary spending and nonexempt direct (i.e., mandatory)
spending.10 The annual spending reductions would be achieved (1) by an automatic across-the-
board cancellation of budgetary resources (i.e., spending cuts)—a process known as
sequestration—for nonexempt direct spending programs over the period FY2013-FY2021, and
for nonexempt discretionary spending in FY2013; and (2) by lowering the BCA-imposed annual
caps on discretionary spending for each of FY2014-FY2021.
In the event that Congress and the President failed to enact Joint Committee legislation, as was
the case, the BCA required the President to order a sequestration of all nonexempt direct and
discretionary spending programs on January 2, 2013. That deadline was delayed by two months,
until March 1, 2103, by the American Taxpayer Relief Act of 2012 (ATRA).11 ATRA also reduced
the total amount of spending cuts for FY2013 by $24 billion, and lowered the FY2013 and
FY2014 discretionary spending caps by a total of $12 billion (i.e., $4 billion in FY2013 and $8
billion in FY2014).12
Health Reform Implementation
There is considerable interest in how automatic spending reductions triggered by the BCA would
affect implementation of the Patient Protection and Affordable Care Act (ACA), the health reform
law enacted in March 2010.13 Among its many provisions, ACA restructures the private health
insurance market, sets minimum standards for health coverage, and, beginning in 2014, will
require most U.S. residents to obtain health insurance coverage or pay a penalty. The law
provides for the establishment by 2014 of state-based health insurance exchanges for the purchase
8 The Joint Committee’s statement is at http://www.deficitreduction.gov/public/index.cfm/2011/11/statement-from-co-
chairs-of-the-joint-select-committee-on-deficit-reduction.
9 The BCA required the annual discretionary spending caps for FY2012-FY2021 to be revised if Congress and the
President failed to enact a joint committee bill. The overall discretionary spending limit for each fiscal year remains
unchanged, but that amount is now divided between defense discretionary spending and all other (i.e., nondefense)
discretionary spending. See footnote 29.
10 Direct, or mandatory, spending generally refers to budget authority that is provided in laws other than the annual
appropriations acts. Mandatory spending includes entitlement authority (e.g., Medicare, Social Security).
11 P.L. 112-240, 126 Stat. 2313.
12 For more information, see CRS Report R42949, The American Taxpayer Relief Act of 2012: Modifications to the
Budget Enforcement Procedures in the Budget Control Act, by Bill Heniff Jr.
13 ACA was signed into law on March 23, 2010 (P.L. 111-148, 124 Stat. 119). A week later, on March 30, 2010, the
President signed the Health Care and Education Reconciliation Act (HCERA; P.L. 111-152, 124 Stat. 1029), which
amended multiple health care and revenue provisions in ACA. Several other bills that were subsequently enacted
during the 111th and 112th Congresses made more targeted changes to specific ACA provisions. All references to ACA
in this report refer to the law as amended.
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of private health insurance. Qualifying individuals and families will be able to receive federal
subsidies to reduce the cost of purchasing coverage through the exchanges.
In addition to expanding private health insurance coverage, ACA, as enacted, requires state
Medicaid programs to expand coverage to all eligible nonelderly, non-pregnant individuals under
age 65 with incomes up to 133% of the federal poverty level (FPL). Under ACA, the federal
government will initially cover 100% of the expansion costs, phasing down to 90% of the costs
by 2020. Medicaid law allows the Secretary of Health and Human Services (HHS) to withhold
existing federal Medicaid matching funds if states refuse to comply with the expansion. However,
in National Federation of Independent Business v. Sebelius, the U.S. Supreme Court found that
the Medicaid expansion violated the Constitution by threatening states with the loss of their
existing federal Medicaid matching funds.14 The Court precluded the HHS Secretary from
penalizing states that choose not to participate in the Medicaid expansion (see text box below).
ACA also amends the Medicare program in an effort to reduce the rate of its projected growth;
imposes an excise tax on insurance plans found to have high premiums; and makes many other
changes to the tax code, Medicare, Medicaid, the State Children’s Health Insurance Program
(CHIP), and other federal programs.
U.S. Supreme Court Decision on ACA (June 28, 2012)
In National Federation of Independent Business v. Sebelius (NFIB), the Court ruled on the constitutionality of both the
individual mandate, which requires most U.S. residents (beginning in 2014) to carry health insurance or pay a penalty,
and the Medicaid expansion. The Court upheld the individual mandate as a constitutional exercise of Congress’s
authority to levy taxes. The penalty is to be paid by taxpayers when they file their tax returns and enforced by the
Internal Revenue Service.
In a separate opinion, the Court found that compelling states to participate in the ACA Medicaid expansion—which
the Court determined to be essential y a new program—or risk losing their existing federal Medicaid matching funds
was coercive and unconstitutional under the Spending Clause and the Tenth Amendment. The Court’s remedy for
this constitutional violation was to prohibit HHS from penalizing states that choose not to participate in the
expansion by withholding any federal matching funds for their existing Medicaid programs. However, if a state accepts
the new ACA expansion funds (initial y a 100% federal match), it must abide by al the expansion coverage rules.
Under NFIB, all other provisions of ACA remain fully intact and operative. For more information, see CRS Report
R42698, NFIB v. Sebelius: Constitutionality of the Individual Mandate, by Erika K. Lunder and Jennifer Staman, and CRS
Report R42367, Medicaid and Federal Grant Conditions After NFIB v. Sebelius: Constitutional Issues and Analysis, by Kenneth
R. Thomas.
ACA is projected to have a significant impact on federal direct spending and revenues. The law
includes direct spending to subsidize the purchase of health insurance coverage through the
exchanges, as well as increased outlays for the expansion of state Medicaid programs. ACA also
includes numerous mandatory appropriations to fund temporary programs to increase access and
funding for targeted groups, provide funding to states to plan and establish exchanges, and
support many other research and demonstration programs and activities. The costs of expanding
public and private health insurance coverage and other spending are offset by revenues from new
taxes and fees, and by savings from payment and health care delivery system reforms designed to
slow the growth in spending on Medicare and other federal health care programs.
14 NFIB v. Sebelius, No. 11-393, slip op. (June 28, 2012), available at http://www.supremecourt.gov/opinions/11pdf/11-
393c3a2.pdf.
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Implementing ACA also is likely to affect discretionary spending, which is provided in and
controlled by annual appropriations acts. The law established numerous new grant programs and
provided for each an authorization of appropriations. It also reauthorized appropriations for many
existing grant programs. While the authorization of appropriations for most of these existing
programs had expired prior to ACA’s enactment, typically they continued to receive an annual
appropriation.
Report Roadmap
This report examines how automatic spending reductions triggered by the BCA would affect
health reform implementation under ACA. The details of such a process would depend on the
statutory interpretations and analysis of the Office of Management and Budget (OMB). Each
year, OMB would be responsible for determining the proportional allocation of required cuts to
discretionary and nonexempt direct spending in both the defense and nondefense categories. It
would also have exclusive authority in applying the exemptions and special rules related to
sequestration. On September 14, 2012, pursuant to a congressional mandate, OMB released a
preliminary analysis of the impact of a BCA-triggered sequestration on FY2013 spending.15
The report is divided into two sections. The first section provides an overview of ACA and
describes the budgetary effects of its insurance coverage and other key spending provisions,
based on CBO’s estimates of the impact of ACA implementation on federal direct spending and
revenues. The second section briefly reviews sequestration under the BCA and discusses which
types of health reform spending would likely be subject to, or exempt from, those reductions.
This product is periodically revised and updated to reflect important legislative and other
developments.
Patient Protection and Affordable Care Act
The primary goal of ACA is to increase access to affordable health insurance for the millions of
Americans without coverage and make health insurance more affordable for those already
covered. In addition, ACA makes numerous changes in the way health care is financed,
organized, and delivered. These provisions are intended to slow the growth in health care costs
and improve the quality of care by aligning payment incentives to increase efficiency and achieve
savings; organizing care delivery systems to promote accountable, patient-centered, and
coordinated care; and establishing benchmarks for better health outcomes.
While many of the key provisions of the law do not take effect until 2014, some provisions are
already in place, and others are being phased in over the next few years.
Coverage Expansions and Market Reforms Prior to 2014
ACA created several temporary programs to increase access and funding for targeted groups.
They include (1) temporary high-risk pools for uninsured individuals with preexisting conditions;
(2) a reinsurance program to reimburse employers for a portion of the health insurance claims’
15 U.S. Office of Management and Budget, OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L.
112-155), http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf.
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costs for their 55- to 64-year-old retirees; and (3) small business tax credits for employers with
fewer than 25 full-time equivalents (FTEs) and average annual wages below $50,000 that choose
to offer health insurance.
In addition, ACA included a series of private insurance market reforms, several of which have
already taken effect. Health plans may no longer impose lifetime limits on the dollar value of
essential benefits, rescind coverage (except in cases of fraud), or deny coverage to children up to
age 19 based on a preexisting condition. Also, young adults up to age 26 generally must be
allowed to remain on their parents’ plans. Finally, plans must cover recommended preventive
services and immunizations without any cost-sharing (i.e., out-of-pocket costs such as deductibles
and co-pays).
Coverage Expansions and Market Reforms Beginning in 2014
The major expansion and reform provisions in ACA take effect in January 2014. States are
expected to establish health insurance exchanges through which eligible individuals and small
employers will be able to purchase coverage from private health insurance plans offering
standardized benefit and cost-sharing packages. In 2017, states may allow larger employers to
purchase health insurance through the exchanges, but are not required to do so. The HHS
Secretary will establish exchanges in states that do not create their own approved exchange.
Refundable tax credits will be available to individuals and families who enroll in exchange plans,
provided their income is generally at or above 100% and does not exceed 400% of the FPL, to
help offset the cost of the insurance premiums. In addition, certain individuals and families
receiving the premium credit will be eligible for a subsidy to lower their cost-sharing.
ACA’s market reforms are further expanded in 2014, with no annual limits on the dollar value of
essential benefits permitted, and no exclusions for preexisting conditions allowed regardless of
age. Plans offered within the exchanges and certain other plans must meet essential benefit
standards, requiring them to cover emergency services, hospital care, physician services,
preventive care, prescription drugs, and mental health and substance use disorder treatment,
among other specified services. Premiums may vary by limited amounts, but only based on age,
family size, geographic area, and tobacco use. Finally, plans must sell and renew policies to all
individuals and may not discriminate based on health status.
Beginning in 2014, most U.S. citizens and legal residents will be required to have insurance or
pay a penalty. In its June 28, 2012, decision, the Supreme Court ruled that ACA’s individual
insurance mandate is within Congress’s constitutional power to levy taxes (see earlier text box).
As plans will no longer be able to restrict coverage of individuals with health problems, the
individual mandate is intended to ensure that healthy individuals participate in the insurance
market rather than waiting until they need health care services. Increasing the number of healthy
persons in the risk pool helps spread the risk.
ACA requires employers with more than 200 full-time employees that offer health insurance
benefits to automatically enroll new employees in a coverage plan, though employees must be
given adequate notice and the opportunity to opt out. Employers with 50 or more full-time
employees that have at least one employee who is enrolled in an exchange plan and receiving a
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premium tax credit may be subject to penalties, whether or not they provide health insurance
coverage to their employees.16
As already noted, ACA requires state Medicaid programs to expand coverage to all nonelderly,
non-pregnant legal residents with incomes up to 133% of FPL. Under the Supreme Court’s
decision, however, states may now choose whether to expand their Medicaid programs without
fear of penalty. Several states have announced that they plan to opt out of the Medicaid
expansion. States making that decision would forgo a substantial amount of federal funding. The
federal government will provide 100% of the costs of the expansion for the first three years,
phasing down to 90% in the years thereafter. Moreover, if a state decides not to expand its
Medicaid program, low-income adults below the poverty line (i.e., below 100% FPL) who were
not covered by, or eligible for, the state’s existing Medicaid program, and who were seeking
instead to purchase insurance coverage through an exchange (in accordance with the individual
insurance mandate), would in general be ineligible for the subsidies.17
Finally, ACA requires states to maintain the current CHIP structure through FY2019, and extends
CHIP appropriations through FY2015.18
Estimated Budgetary Impact
At the time of ACA’s enactment in March 2010, CBO and the Joint Committee on Taxation (JCT)
estimated that the law’s provisions to expand insurance coverage would result in gross costs of
$938 billion over the 10-year period FY2010-FY2019. Gross costs include the exchange
subsidies and related spending, increased spending on Medicaid and CHIP, and tax credits for
certain small employers. CBO and JCT further estimated that those costs would be partially offset
by an estimated $150 billion from penalties paid by uninsured individuals and employers, an
excise tax on high-premium insurance plans, and net savings from other effects that coverage
expansion is expected to have on tax revenues and outlays. Thus, CBO and JCT projected in their
March 2010 baseline budget projections that ACA’s insurance coverage provisions would result in
net costs of $788 billion (i.e., $938 billion - $150 billion) over the FY2010-FY2019 period.19
The net costs of coverage expansion under ACA are further offset by (1) new revenues from taxes
and fees (other than those related to insurance coverage, mentioned above); and (2) direct
16 For more details on the employer penalties, see CRS Report R41159, Summary of Potential Employer Penalties
Under the Patient Protection and Affordable Care Act (PPACA), by Janemarie Mulvey.
17 ACA exempts the following individuals from the individual mandate: (1) individuals of certain recognized religious
sects, (2) those not lawfully present in the United States, and (3) incarcerated individuals. The law further exempts the
following persons from the individual mandate penalty: (1) those for whom the lowest-cost available plan exceeds 8%
of their income; (2) those with incomes below the tax filing threshold; (3) those without coverage for less than three
months; and (4) members of an Indian tribe. Thus, most low-income individuals residing in states that choose not to
expand their Medicaid programs would not be penalized for failing to purchase insurance coverage through an
exchange. ACA also gives the HHS Secretary the authority to establish a hardship exemption. In a July 10, 2012, letter
to state governors, Secretary Sebelius indicated that she intended to exercise that authority as appropriate to exempt
low-income individuals who would not qualify for one of the four statutory exemptions.
18 For more details on ACA’s changes to the Medicaid and CHIP programs, see CRS Report R41210, Medicaid and the
State Children’s Health Insurance Program (CHIP) Provisions in ACA: Summary and Timeline, by Evelyne P.
Baumrucker et al.
19 U.S. Congressional Budget Office, letter to the Honorable Nancy Pelosi, Speaker, U.S. House of Representatives,
providing an estimate of the direct spending and revenue effects of ACA, as amended by HCERA (March 20, 2010),
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/doc11379/amendreconprop.pdf. See Table 4.
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spending savings from payment and delivery system reform provisions that are designed to slow
the rate of growth of Medicare spending and improve outcomes and the quality of care. In the
March 2010 baseline, CBO and JCT projected that the new revenues and direct spending
savings—briefly described in separate sections below—would total $912 billion over the 10-year
period FY2010-FY2019. Based on those projections, CBO and JCT estimated overall that ACA
implementation would reduce federal deficits by $124 billion over that period.20
CBO and JCT have updated their estimates of ACA’s impact on federal direct spending and
revenues several times since March 2010. Table 1 summarizes five sets of estimates, including
the initial March 2010 estimates and the most recent ones, which were released in February 2013.
Note that the more recent estimates include only the gross and net costs of insurance coverage
expansion. They do not include updated projections of the law’s other offsetting revenues and
direct spending savings.
Table 1. CBO’s Estimates of the Impact of ACA on the Federal Deficit
Dollars in Billions
Mar. 2010
Feb. 2011
Mar. 2012
Aug. 2012
Feb. 2013
Estimates
Estimates
Estimates
Estimates
Estimates
(2010-
(2012-
(2012-
(2013-
(2013-
2019)
2021)
2021)
2022)
2022)
Insurance Coverage Expansion
Gross
cost
938 1,390 1,445 1,680 1,620
Medicaid and CHIP (non-add)
434
n.a.
627
643
550
Exchange subsidies (non-add)
464
n.a.
777
1,015
1,047
Employer tax credit (non-add)
40
n.a.
41
22
23
Net
cost
788 1,042 1,131 1,165 1,165
Other Direct Spending
-492 -732
n.a. n.a. n.a.
Other Revenues
-420 -520
n.a. n.a. n.a.
Net Impact on Federal Deficit
-124
-210
n.a.
n.a.
n.a.
Sources: (1) Estimates for March 2010, and February and March 2011: U.S. Congress, House Committee on
Energy and Commerce, Subcommittee on Health, “CBO’s Analysis of the Major Health Care Legislation Enacted
in March 2010,” Statement of Douglas W. Elmendorf, Director, 112th Cong., 1st sess., March 30, 2011,
http://www.cbo.gov/ftpdocs/121xx/doc12119/03-30-HealthCareLegislation.pdf. See Tables 1 and 2. (2) Estimates
for March 2012: U.S. Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the
Affordable Care Act Updated for the Recent Supreme Court Decision,” July 24, 2012, http://www.cbo.gov/sites/
default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf. See Table 2. (3) Estimates for August
2012 and February 2013: U.S. Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years
2013 to 2023,” February 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-
BudgetOutlook.pdf. See Table A-2.
Notes: Numbers may not add up to totals due to rounding; n.a. = not available.
CBO and JCT’s estimates of the gross and net costs of expanding insurance coverage have grown
over time. For example, net costs increased from $788 billion in the March 2010 estimates to
$1,165 billion in the February 2013 estimates (see Table 1). The difference is due in part to
20 Ibid. See Table 1.
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changes in the timing of the 10-year budget window over which these estimates are made. The
March 2010 estimates cover the period FY2010-FY2019, whereas the February 2011 and March
2012 estimates begin and end two years later—FY2012-FY2021—and thus capture an additional
two years of spending on exchange subsidies and Medicaid expansion. The two most recent sets
of estimates cover the period FY2013-FY2022, capturing yet another year of spending on
coverage expansion. Other factors influencing the ACA budgetary estimates include (1) changes
in the economic outlook, (2) enactment of legislation modifying ACA’s insurance coverage
provisions, (3) HHS decisions and policies on ACA implementation;,(4) reduced growth in health
care spending, and (5) technical changes in the estimating procedures used by CBO and JCT.
ACA, as enacted, requires each state to expand its Medicaid program by 2014 or risk losing
federal matching funds for the existing program. CBO and JCT’s budgetary estimates prior to the
Supreme Court’s decision assumed that every state would expand eligibility for coverage under
its Medicaid program as specified in ACA. In the August 2012 and February 2013 estimates,
which reflect the Court’s decision, CBO and JCT now project that some states will opt out of the
Medicaid expansion altogether while others will delay Medicaid expansion until after 2014. That
translates into a reduction in Medicaid enrollment and less spending than previously estimated.
However, spending on subsidies is projected to increase due to higher enrollment in the
exchanges.
Estimated Impact on Insurance Coverage
Table 2 shows CBO and JCT’s March 2012 and February 2013 estimates of the impact of ACA
implementation on insurance coverage among legal nonelderly U.S. residents. In the March 2012
baseline, prior to the Supreme Court’s decision, CBO and JCT estimated that ACA would
increase the number of nonelderly Americans with health insurance by about 33 million in 2022.
Expansion of the Medicaid and CHIP programs was expected to enroll 17 million additional
individuals in 2022, accounting for roughly half of the increase in coverage. The other half was
due to a projected increase in private health insurance coverage. An estimated 22 million people
were expected to purchase their own coverage through insurance exchanges in 2022. However,
about 6 million fewer people were projected to obtain coverage through their employers or
purchase individual coverage directly from insurers, resulting in an estimated net increase in the
number of people with private insurance coverage of about 16 million.
As a result of the Supreme Court decision, CBO and JCT now estimate that fewer people will be
covered by the Medicaid program, more people will obtain health insurance through the
exchanges, and more people will remain uninsured. The February 2013 baseline projects that in
2022 an additional 12 million people will be covered by Medicaid and CHIP, which is 5 million
fewer people than previously estimated, and about 25 million people will be enrolled in
exchanges, which is 3 million more people than the earlier estimate. CBO and JCT also estimate
that 7 million fewer people will have employment-based coverage, more than double the March
2012 estimate. That change is largely due to ATRA’s reduction in marginal tax rates, which
reduced the tax benefit associated with employment-based health insurance. CBO and JCT
anticipate that the change in tax law will increase the number of employees who shift out of such
coverage. Overall, CBO and JCT estimate that about 6 million fewer people will gain health
insurance coverage in 2022 than previously estimated (see Table 2).
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Table 2. CBO’s Estimates of the Impact of ACA on Health Insurance Coverage
Millions of Nonelderly People
Change in Coverage by 2022
Mar. 2012
Feb. 2013
Estimates
Estimates
Medicaid and CHIP
17
12
Employment-based coveragea -3
-7
Nongroup and otherb -3
-4
Exchanges 22
25
Total 33
27
Sources: (1) Estimates for March 2012: U.S. Congressional Budget Office, “Estimates for the Insurance
Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 24,
2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf. See
Table 1. (2) Estimates for February 2013: U.S. Congressional Budget Office, “The Budget and Economic Outlook:
Fiscal Years 2013 to 2023,” February 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-
BudgetOutlook.pdf. See Table A-2.
Notes: Numbers may not add to totals due to rounding.
a. The change in employer-based coverage is the net result of increases in and loss of such coverage.
b. Other includes Medicare; however, the effects of ACA are almost entirely on nongroup (i.e., individual)
coverage.
Revenues
The increase in revenues is achieved largely by raising taxes on high-income households and by
imposing fees on insurers and on manufacturers and importers of pharmaceuticals and medical
devices.21 In the February 2011 baseline, CBO and JCT estimated that those revenues would total
$520 billion over the 10-year period FY2012-FY2021 (see Table 1).
Savings from Payment and Delivery System Reforms
ACA included numerous Medicare payment provisions intended to reduce the rate of growth in
spending. They include reductions in Medicare Advantage (MA) plan payments and a lowering of
the annual payment update for hospitals and certain other providers.22 ACA establishes an
Independent Payment Advisory Board (IPAB) to make recommendations for achieving specific
Medicare spending reductions if costs exceed a target growth rate. IPAB’s recommendations will
take effect unless Congress overrides them, in which case Congress would be responsible for
achieving the same level of savings.23 Also, ACA provides tools to help reduce fraud, waste, and
abuse in both Medicare and Medicaid.
21 For more information about the revenue provisions in ACA, see CRS Report R41128, Health-Related Revenue
Provisions in the Patient Protection and Affordable Care Act (ACA), by Janemarie Mulvey.
22 For more information about the Medicare provisions in ACA, see CRS Report R41196, Medicare Provisions in the
Patient Protection and Affordable Care Act (PPACA): Summary and Timeline, coordinated by Patricia A. Davis.
23 For more information about IPAB, see CRS Report R41511, The Independent Payment Advisory Board, by Jim Hahn
and Christopher M. Davis.
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Other provisions establish pilot, demonstration, and grant programs to test integrated models of
care, including accountable care organizations (ACOs), medical homes that provide coordinated
care for high-need individuals, and bundling payments for acute-care episodes (including
hospitalization and follow-up care). ACA created the Center for Medicare and Medicaid
Innovation (CMMI) to pilot payment and service delivery models, primarily for Medicare and
Medicaid beneficiaries. The law also establishes new pay-for-reporting and pay-for-performance
programs within Medicare that will pay providers based on the reporting of, or performance on,
selected quality measures.
Additionally, ACA creates incentives for promoting primary care and prevention; for example, by
increasing primary care payment rates under Medicare and Medicaid, covering recommended
preventive services without cost-sharing, and funding community-based prevention and employer
wellness programs, among other things. The law increases funding for community health centers
and the National Health Service Corps to expand access to primary care services in rural and
medically underserved areas and reduce health disparities. Finally, ACA requires the HHS
Secretary to develop a national strategy for health care quality to improve care delivery, patient
outcomes, and population health.
In the February 2011 baseline, CBO and JCT estimated that the health care payment and delivery
system reform provisions in ACA would result overall in a net reduction in direct health care
spending of $732 billion over the period FY2012-FY2021 (see Table 1).
Potential Impact of Automatic Spending Reductions
on Health Reform Spending
As discussed in the introduction to this report, the BCA instructed the Joint Committee to develop
legislation that would reduce the federal budget deficit by a total of at least $1.5 trillion over the
period FY2012-FY2021. If, as turned out to be the case, Congress and the President were unable
to enact Joint Committee legislation reducing the deficit by more than $1.2 trillion over that
period, the BCA instructed the President to order a sequestration of all nonexempt direct and
discretionary spending programs on January 2, 2013. The enactment of ATRA, which was signed
into law that day, delayed that deadline by two months, until March 1, 2013.
Overview of BCA’s Spending Reduction Procedures
Based on the formula in the BCA, the automatic spending reductions would cut $109.33 billion
for each fiscal year over the period FY2013-FY2021. Each year’s cut would be equally divided
between defense and nondefense spending. The annual spending reduction in each of these two
categories (i.e., $54.7 billion) would be further divided proportionately between discretionary
spending and nonexempt direct (i.e., mandatory) spending. Direct spending reductions would be
executed each year through a sequestration (i.e., an across-the-board cancellation) of budgetary
resources in nonexempt accounts.
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The sequestration process was first established in 1985 by the Balanced Budget and Emergency
Deficit Control Act (BBEDCA), commonly known as the Gramm-Rudman-Hollings Act.24
Initially, sequestration was tied to annual maximum deficit targets. If the budget deficit exceeded
those target levels, then automatic across-the-board spending cuts would be triggered. The
BBEDCA has been amended several times, notably by the Budget Enforcement Act of 1990,25
which tied sequestration to new statutory spending limits, and most recently by the BCA. The
sequestration process is subject to exemptions and to certain rules, which are specified in Sections
255 and 256, respectively, of the BBEDCA.26 Several of those provisions relate to health
spending under ACA and are discussed below.
Under the sequestration rules, reductions in Medicare payments to health care providers and
health plans (which account for most of Medicare spending) are capped at 2%. Many other
federal direct spending programs, accounting for most of the government’s entitlement and other
direct spending (excluding Medicare), are exempt from sequestration altogether.27
Discretionary spending reductions in FY2013 also would be achieved through a sequestration of
nonexempt discretionary appropriations. The sequestration rules exempt some discretionary
spending, notably for veterans’ health care and Pell grants.28 For each of the remaining fiscal
years (i.e., FY2014-FY2021), however, discretionary spending reductions would be achieved by
lowering the BCA discretionary spending caps.29 There would be no across-the-board cuts
through sequestration. Instead, the Appropriations Committees would decide how to apportion the
cuts within the reduced cap.
The BCA requires the Office of Management and Budget (OMB) to calculate, and the President
to order, the sequestration of nonexempt discretionary appropriations for FY2013 and nonexempt
direct spending for each of FY2013 through FY2021. As already noted, the sequestration for
FY2013 was to occur on January 2, 2013, but has been delayed until March 1, 2013, by ATRA.
The BCA requires the sequestrations for each subsequent fiscal year (i.e., FY2014-FY2021) to
occur at the time of the President’s annual budget submission in early February.
On September 14, 2012, OMB released a report on the potential impact of the anticipated January
2, 2013, sequestration order.30 The OMB report provides a breakdown of exempt and nonexempt
budget accounts, and includes estimates of the FY2013 funding reductions in nonexempt
accounts.
24 P.L. 99-177, Title II, 99 Stat. 1038.
25 P.L. 101-508, Title XIII, 104 Stat. 1388-573.
26 For an overview of the BBEDCA exemptions and special rules, see CRS Report R42050, Budget “Sequestration”
and Selected Program Exemptions and Special Rules, coordinated by Karen Spar.
27 Ibid.
28 Ibid. Note: All veterans programs, mandatory and discretionary, are exempt from sequestration.
29 As already discussed (see footnote 9), the annual discretionary spending caps for FY2012-FY2021 have been
revised, with the amount now divided between defense discretionary spending and all other (i.e., nondefense)
discretionary spending. Annual discretionary spending reductions, whether by sequestration (FY2013) or through a
downward adjustment of the revised spending caps (FY2014-FY2021), would be applied to both defense and
nondefense spending categories. Note that ATRA (P.L. 112-240) reduced the FY2013 cap by $4 billion and the
FY2014 cap by $8 billion. In both cases, the cut is equally divided between defense and nondefense spending.
30 U.S. Office of Management and Budget, OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L.
112-155), http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/stareport.pdf.
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Table 3 summarizes OMB’s estimates for nondefense spending. OMB calculated that
sequestration would result in an 8.2% reduction in nonexempt discretionary spending and a 7.6%
reduction in spending under nonexempt mandatory programs. Sequestration also would impose
cuts of 2% on (1) Medicare payments to health plans and health care providers and (2) mandatory
spending on health centers and Indian health. OMB emphasized that the estimates and budget
account classifications in the report are preliminary. The agency noted that “[i]f the sequestration
were to occur, the actual results would differ based on changes in law and ongoing legal,
budgetary, and technical analysis.”31
Importantly, the OMB estimates predate ATRA’s enactment and do not take into account the law’s
$24 billion reduction in BCA-required spending cuts for FY2013. Because the sequestration is
divided equally between defense and nondefense spending, each of these two spending categories
would be subject to $12 billion less in spending cuts (i.e., $42.67 billion, instead of $54.67
billion). Applying that adjustment to OMB’s calculations lowers the estimated percentage
reduction in nonexempt nondefense direct and discretionary spending under a FY2013
sequestration order.32
Table 3. OMB’s Estimates of the Impact of Sequestration on FY2013 Nondefense
Spending
Figures Do Not Reflect ATRA’s Adjustment
Percent
Programs
Reduction
Discretionary Spending
Nonexempt programs
8.2%
Direct (Mandatory) Spending
Medicare payments to providers and plans
2.0%
Health centers and Indian health
2.0%
Nonexempt programs
7.6%
Source: Office of Management and Budget.
The remaining sections of this report discuss the potential impact of a Joint Committee
sequestration on ACA FY2013 spending in the following areas: (1) insurance coverage
expansion, including exchanges subsidies and Medicaid; (2) other mandatory spending; (3)
discretionary spending; and (4) federal administrative costs.
31 Ibid., p. 1. It should also be noted that the estimated percentage reductions may not accurately capture the actual
impact that sequestration would have on specific agencies and programs. A sequestration occurring on March 1 means
that the cuts effectively apply to the final 7 months of the fiscal year. For agencies that obligate a disproportionate
amount of their annual budgetary resources in the first half of the fiscal year, the impact of the cuts on the remaining
unobligated funds may be significantly greater than indicated by the percentage reduction.
32 The Center on Budget and Policy Priorities estimates that the ATRA adjustment would result in the following
percentage reductions in FY2013 nondefense spending: 5.1% for nonexempt discretionary programs, and 5.3% for
nonexempt direct spending. Cuts to Medicare and direct spending on health centers and Indian health remain capped at
2%. See http://www.offthechartsblog.org/heres-how-the-march-1-sequester-would-work/.
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Insurance Coverage Expansion
It appears that most of ACA’s projected spending on expanding insurance coverage would not be
subject to sequestration in the event that spending reductions are triggered under the BCA. First,
the BBEDCA exempts the Medicaid and CHIP programs from sequestration.33 According to CBO
and JCT’s February 2013 estimates, Medicaid and CHIP outlays are projected to account for $550
billion, or 34%, of the gross costs of $1,620 billion for coverage expansion over the FY2013-
FY2022 period (see Table 4).34
Second, the refundable tax credits available to individuals and families with incomes between
100% and 400% of the FPL for purchasing insurance coverage through the exchanges also would
likely be exempt from a sequestration order. While the ACA premium tax credits are not
specifically exempted from sequestration, the BBEDCA provides a general exemption for
refundable individual tax credits.35 These premium tax credits have the effect of limiting the cost
of purchasing coverage to a specified percentage of income. Based on CBO and JCT’s February
2013 estimates, the premium tax credits account for approximately $885 billion, or 85%, of
ACA’s total exchange subsidies and related spending of $1,047 billion over the FY2013-FY2022
period (see Table 4). Exchange subsidies and related spending, in turn, represents about 65% of
the $1,620 billion in gross costs for coverage expansion.36
In addition to the premium tax credits for purchasing coverage through an exchange, certain
individuals and families receiving the credits are also eligible for coverage with lower cost-
sharing (i.e., out-of-pocket costs such as deductibles and co-pays) than otherwise required under
the law. This is achieved through a cost-sharing subsidy, which is paid directly to the insurer to
cover the extra costs associated with lower patient cost-sharing. In the absence of any exemption
under BBEDCA, the cost-sharing subsidies would be fully sequestrable at the rate applicable to
nonexempt nondefense mandatory spending.37 Based on CBO and JCT’s February 2013
estimates, the cost-sharing subsidies account for an additional $155 billion, or 15%, of ACA’s
total exchange subsidies and related spending over the FY2013-FY2022 period (see Table 4).38
33 Low-income programs, including Medicaid and CHIP, that are exempt from sequestration are listed in BBEDCA
§255(h). 2 U.S.C. §905(h).
34 U.S. Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act
Updated for the Recent Supreme Court Decision,” July 24, 2012, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/43472-07-24-2012-CoverageEstimates.pdf. See Table 2.
35 BBEDCA §255(d) reads as follows: “Payments to individuals made pursuant to provisions of the Internal Revenue
Code of 1986 establishing refundable tax credits shall be exempt from reduction under any order issued under this
part.” 2 U.S.C. §905(d).
36 U.S. Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act
Updated for the Recent Supreme Court Decision,” July 24, 2012, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/43472-07-24-2012-CoverageEstimates.pdf. See Table 2. Note: The estimated share of premium tax credit
spending as a percentage of ACA’s total exchange subsidies and related spending is based on the figures provided in
CBO’s March 2012 baseline at http://www.cbo.gov/sites/default/files/cbofiles/attachments/
43057_HealthInsuranceExchanges.pdf.
37 The impact of such an order is unclear. ACA entitles certain low-income exchange enrollees to coverage with
reduced cost-sharing and requires the participating insurers to provide that coverage. Sequestration would not change
that requirement. In the event of a sequestration order, insurers presumably would still have to provide required
coverage to qualifying enrollees but they would not receive the full subsidy to cover their increased costs.
38 U.S. Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act
Updated for the Recent Supreme Court Decision,” July 24, 2012. Available at http://www.cbo.gov/sites/default/files/
cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf. See Table 2. Note: The estimated share of the cost-
(continued...)
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Finally, mandatory spending on the small employer tax credits to help offset the cost of
purchasing health insurance for their employees also would appear to be fully sequestrable at the
rate applicable to nonexempt nondefense mandatory spending.39 These credits are available to
for-profit and nonprofit employers with fewer than 25 FTEs and average annual wages of less
than $50,000.40 According to CBO and JCT’s February 2013 estimates, the small employer tax
credits are projected to cost $23 billion over the FY2013-FY2022 period, or about 1% of the
$1,620 billion in gross costs for coverage expansion (see Table 4).41
Other Mandatory Spending
ACA included numerous mandatory appropriations that provide billions of dollars to support new
and existing grant programs and other activities. Many of the provisions are annual appropriations
of specified amounts for one or more fiscal years. A few of them are multiple-year appropriations,
in which the amount appropriated is available for obligation for a definite period of time in excess
of one fiscal year (e.g., for the period FY2011-FY2014). Often the provision includes additional
language stating that the funds are to remain available “until expended” or “without fiscal year
limitation.”
ACA appropriated billions of dollars for temporary programs for targeted groups, including (1) $5
billion for the Pre-Existing Condition Insurance Plan (PCIP), a temporary insurance program to
provide health insurance coverage for uninsured individuals with a preexisting condition; (2) $5
billion for a temporary reinsurance program to reimburse employers for a portion of the costs of
providing health benefits to early retirees aged 55-64; and (3) $6 billion for the Consumer
Operated and Oriented Plan (CO-OP) program, to establish temporary health insurance
cooperatives.42 ACA also included money for states to plan and establish health insurance
exchanges. The law provided $10 billion for the FY2011-FY2019 period—and $10 billion for
each subsequent 10-year period—for the CMMI to test and implement innovative payment and
service delivery models, and it funded an independent board (i.e., IPAB) to provide Congress
with proposals for reducing Medicare cost growth and improving quality of care for Medicare
beneficiaries.
(...continued)
sharing subsidies as a percentage of ACA’s total exchange subsidies and related spending is based on the figures
provided in CBO’s March 2012 baseline, available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/
43057_HealthInsuranceExchanges.pdf.
39 Among the programs and activities listed as being exempt from a sequestration order, BBEDCA §255 includes
payments to individuals in the form of refundable tax credits (see footnote 35). It does not include small employer tax
credits.
40 For more details on the small employer tax credit, see CRS Report R41158, Summary of Small Business Health
Insurance Tax Credit Under the Patient Protection and Affordable Care Act (ACA), by Janemarie Mulvey and Hinda
Chaikind.
41 U.S. Congressional Budget Office, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act
Updated for the Recent Supreme Court Decision,” July 24, 2012, http://www.cbo.gov/sites/default/files/cbofiles/
attachments/43472-07-24-2012-CoverageEstimates.pdf. See Table 2.
42 The Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10, 125 Stat. 38) canceled
$2.2 billion of the $6 billion appropriation for the CO-OP program. The Consolidated Appropriations Act, 2012 (P.L.
112-74, 125 Stat. 786) rescinded an additional $400 million from the CO-OP appropriation. Finally, ATRA (P.L. 112-
240, 126 Stat. 2313) rescinded all but 10% of the remaining unobligated funds.
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ACA created four special funds and appropriated substantial amounts to each. First, the
Community Health Center Fund (CHCF) will provide a total of $11 billion in annual
appropriations over five years (FY2011-FY2015) to help fund community health center
operations and the National Health Service Corps. (A separate ACA appropriation provided $1.5
billion for health center construction and renovation.) Second, the Patient-Centered Outcomes
Research Trust Fund (PCORTF) will support comparative effectiveness research through FY2019
with a mix of annual appropriations and transfers from the Medicare trust funds. Third, the
Prevention and Public Health Fund (PPHF), for which ACA provided a permanent annual
appropriation, is intended to support prevention, wellness, and other public health-related
programs and activities authorized under the Public Health Service Act (PHSA).43 Finally, ACA
provided $1 billion to the Health Insurance Reform Implementation Fund (HIRIF) to help cover
the initial administrative costs of implementing the law.
In addition, ACA appropriated $2.4 billion for maternal and child health programs. Overall, the
law included more than $100 billion in direct appropriations over the 10-year period FY2010-
FY2019, including $40 billion to provide two more years of funding for CHIP (see Table 4).44
A few of the appropriations in ACA are included in CBO and JCT’s estimate of the costs of
coverage expansion (e.g., PCIP, CO-OP, exchange establishment grants). All the remaining
amounts—including funding for community health centers, health workforce programs, and
public health activities—are captured in CBO’s overall estimate of the impact of the law’s
payment and delivery system reform provisions on direct spending.
Generally, the mandatory appropriations in ACA would be fully sequestrable at the rate applicable
to nonexempt nondefense mandatory spending. However, for any given fiscal year in which
sequestration was ordered, only new budget authority for that year (including advance
appropriations that first become available for obligation in that year) would be reduced.
Unobligated balances (non-defense only) carried over from previous fiscal years are exempt from
a sequestration order.45 Thus, an FY2013 sequestration order to reduce direct spending would not
apply to unobligated ACA funds that had been appropriated in a prior fiscal year (i.e., FY2010-
FY2012) and were still available for obligation.
The exemption for unobligated balances carried over from prior fiscal years would apply to a
number of ACA appropriations. As already mentioned, the appropriation provision often specifies
that the funds are to remain available “until expended” or “without fiscal year limitation.” One
example is the PCIP program to provide health insurance coverage for eligible individuals who
have been uninsured for six months and have a preexisting condition. The program terminates on
January 1, 2014. ACA appropriated $5 billion in FY2010, to remain available without fiscal year
limitation, to pay claims against the PCIP that are in excess of the premiums collected from
enrollees. Any unobligated PCIP funds in FY2013 would be exempt from sequestration.46
43 Section 3205 of the Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96) reduced ACA’s
appropriations to the PPHF over the period FY2013-FY2021 by a total of $6.25 billion. Under ACA, the PPHF would
have received a total of $16.75 billion over that nine-year period; P.L. 112-96 reduced that amount to $10.50 billion.
44 For more details on all of ACA’s mandatory appropriations, see CRS Report R41301, Appropriations and Fund
Transfers in the Patient Protection and Affordable Care Act (ACA), by C. Stephen Redhead.
45 An exemption for non-defense unobligated balances is provided in BBEDCA §255(e). It reads as follows:
“Unobligated balances of budget authority carried over from prior fiscal years, except balances in the defense category,
shall be exempt from reduction under any order issued under this part.” 2 U.S.C. §905(e).
46 Table 2 in CRS Report R41301, Appropriations and Fund Transfers in the Patient Protection and Affordable Care
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According to OMB’s preliminary analysis, the FY2013 appropriations for both PPHF and
PCORTF would be fully sequestrable at the rate applicable to nonexempt nondefense mandatory
spending. However, for reasons discussed below, sequestration of ACA’s FY2013 appropriation
to the CHCF would be capped at 2%.
Discretionary Spending
ACA implementation will affect not only direct spending and revenues but also discretionary
spending, which is provided in and controlled by annual appropriations acts. The law
reauthorized appropriations for numerous existing discretionary grant programs and activities
authorized under the PHSA, and permanently reauthorized appropriations for programs and
services provided by the Indian Health Service (IHS). While the authorizations of appropriations
for most existing programs had expired prior to their reauthorization in ACA, most of them
continued to receive an annual appropriation. ACA also created a number of new discretionary
grant programs and provided for each an authorization of appropriations.47
Many of ACA’s discretionary spending provisions authorized annual appropriations of specified
amounts for one or more fiscal years. Other provisions authorized the appropriation of specified
amounts for FY2010 or FY2011 and unspecified amounts—such sums as may be necessary, or
SSAN—for later years. A few provisions authorized multi-year appropriations, available for
obligation for a period in excess of one fiscal year. Numerous other provisions simply authorized
the appropriation of SSAN, in a few cases without specifying any fiscal years.
Funding for all these discretionary programs depends on actions taken by congressional
appropriators, a process that may lead to greater or smaller amounts than the sums authorized by
ACA. With Congress now operating under BCA’s discretionary spending limits, it may prove
difficult to secure funding for new programs and activities. To date, few new discretionary
programs authorized by ACA have received funding through the annual appropriations process,
though a handful of programs have received funding from the PPHF.48 Even maintaining current
funding levels for existing programs with an established appropriations history may prove a
challenge under growing pressure to reduce federal discretionary spending.
CBO estimated that ACA’s discretionary spending provisions, if fully funded by future
appropriations acts, would result in appropriations of almost $100 billion over the period
FY2012-FY2021 (see Table 4).49 However, most of that funding—about $85 billion—would be
(...continued)
Act (ACA), shows all the ACA appropriations by fiscal year over the period FY2010-FY2019 and, for each provision,
indicates whether the funds are to remain available for an indefinite period of time (i.e., until expended, or without
fiscal year limitation), subject to any requirement that the program terminate on a specific date.
47 For more details on all of ACA’s discretionary spending provisions, see CRS Report R41390, Discretionary
Spending in the Patient Protection and Affordable Care Act (ACA), coordinated by C. Stephen Redhead.
48 Ibid.
49 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Health, “CBO’s Analysis of the
Major Health Care Legislation Enacted in March 2010,” Statement of Douglas W. Elmendorf, Director, 112th Cong., 1st
sess., March 30, 2011. Available at http://www.cbo.gov/ftpdocs/121xx/doc12119/03-30-HealthCareLegislation.pdf.
See p. 16. CBO’s estimate of discretionary spending includes (1) amounts specified in ACA, plus estimated amounts
for subsequent years (adjusted for anticipated inflation) where ACA specified an amount for the first year and
authorized SSAN for subsequent years; and (2) estimated amounts for subsequent years (adjusted for anticipated
inflation) where there was an appropriation under existing law for FY2010, and ACA authorized the appropriation of
(continued...)
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for programs that were in existence prior to, and were reauthorized by, ACA; namely, the
National Health Service Corps, the health centers program, and the IHS.
In general, ACA-related discretionary spending in FY2013 would be fully sequestrable at the rate
applicable to nonexempt nondefense discretionary spending, according to OMB’s analysis.
Importantly, OMB concluded that the sequestration rules under BBEDCA Section 256, which
include a 2% limit on cuts in spending on health centers and the IHS, would apply only to
mandatory spending reductions and not to cuts in discretionary spending. Thus, FY2013
discretionary spending on health centers would be fully sequestrable, whereas cuts in CHCF
(mandatory) funding for health centers would be capped at 2%.50
For each of the remaining years (i.e., FY2014-FY2021), discretionary spending reductions would
be achieved through a downward adjustment of the revised statutory spending limits. In contrast
to the automatic spending reductions achieved through sequestration, lowering the annual
discretionary spending limits allows Congress and the President to determine through the annual
appropriations process which accounts are to be reduced, and by how much, in order to meet
those limits.51 Lowering the annual spending limits also would make it that much more of a
challenge to maintain funding levels for existing programs.
Federal Administrative Expenses
CBO has projected that both HHS and the Internal Revenue Service (IRS) will incur substantial
administrative costs to implement the policies and programs established by ACA. CBO estimated
that the costs to the IRS of implementing the eligibility determination, documentation, and
verification processes for premium and cost-sharing subsidies will probably total between $5
billion and $10 billion over 10 years. It further estimated that the costs to HHS for implementing
the changes in Medicare, Medicaid, and CHIP, as well as some of the reforms to the private
insurance market, will require similar amounts over 10 years.52
(...continued)
SSAN for later years. The CBO estimate does not include new ACA programs for which the law provided only an
authorization for the appropriation of SSAN.
50 Based on its statutory interpretation of BBEDCA, OMB determined that a Joint Committee sequestration would not
be implemented as an order issued under BBEDCA §254, as are sequestration orders to enforce the discretionary
spending limits (BBEDCA §251) and the pay-as-you-go, or PAYGO, requirements (BBEDCA §252). This is
significant because the §256 rules apply only to a sequestration order issued under §254. Thus, OMB concluded that
the §256 rules “do not apply to a Joint Committee sequestration, except to the extent those rules are otherwise made
applicable by another provision of law.” While §251A(8) of BBEDCA specifically applies the §256 rules to a Joint
Committee sequestration of nonexempt direct (i.e., mandatory) spending, there is no such provision for discretionary
spending in §251A(7).
51 The revised discretionary spending limits for FY2014-FY2021 would be enforced through a separate sequestration
process pursuant to BBEDCA §251 (see previous footnote). If discretionary appropriations within either category (i.e.,
defense or nondefense) exceeded the spending limit for that category, then across-the-board cuts would be triggered in
nonexempt discretionary appropriation accounts, within the category in which the breach occurred, by an amount
necessary to eliminate the breach.
52 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Health, “CBO’s Analysis of the
Major Health Care Legislation Enacted in March 2010,” Statement of Douglas W. Elmendorf, Director, 112th Cong., 1st
sess., March 30, 2011. Available at http://www.cbo.gov/ftpdocs/121xx/doc12119/03-30-HealthCareLegislation.pdf.
See p. 15.
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Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
In general, under BBEDCA Section 256, federal administrative expenses are subject to
sequestration, regardless of whether they are incurred in connection with a program or activity
that is otherwise exempt or subject to a special rule.53 Thus, while the ACA refundable tax credits
may be exempt from sequestration, the federal administrative expenses associated with the
program would be sequestrable. Section 256 provides an exception for federal payments to state
and local governments that match or reimburse these governments for their own administrative
costs. Such payments are not considered federal administrative expenses and are subject to
sequestration, but only to the extent that the relevant federal program is subject to sequestration.54
For example, federal payments to state Medicaid programs for administrative costs would be
exempt from sequestration because the Medicaid program as a whole is exempt.
However, as discussed in the previous section, OMB has determined that the sequestration rules
in BBEDCA Section 256 would apply only to direct spending reductions required by a Joint
Committee sequestration, and not to reductions in discretionary spending. With regard to federal
administrative expenses, OMB concluded that mandatory administrative expenses for an
otherwise exempt (i.e., non-sequestrable) program are subject to sequestration (pursuant to
Section 256), whereas discretionary administrative expenses for an otherwise exempt (i.e., non-
sequestrable) program are not sequestrable.
It has already been noted that ACA provided $1 billion in mandatory funds to help cover the
initial administrative costs of implementation. HHS projected that all those funds would be
obligated by the end of FY2012. Thereafter, ACA administrative costs will have to be funded by
annual discretionary appropriations. The President’s FY2013 budget requested more than $1
billion in new discretionary funding for HHS and the IRS to pay for ongoing administrative costs
associated with ACA implementation. It remains unclear whether congressional appropriators will
provide any or all of those funds in FY2013. Congress has yet to complete action on any of the
FY2013 appropriations bills and has instead passed, and the President has signed, a continuing
resolution to provide temporary funding authority for the first six months of FY2013. The
requested ACA administrative funding was not included in the FY2013 continuing resolution.55
53 BBEDCA §256(h)(1), 2 U.S.C. §906(h)(1).
54 BBEDCA §256(h)(3), 2 U.S.C. §906(h)(3).
55 The Continuing Appropriations Resolution, 2013 (P.L. 112-175, 126 Stat. 1313), funds government operations for
most discretionary programs at an estimated annualized rate of $1.047 trillion in discretionary budget authority, which
equals the FY2013 discretionary spending cap set by the BCA. It increases funding for most federal agencies and
programs by 0.612% over the FY2012 levels. P.L. 112-175 does not incorporate any of the new ACA-related policies
or funding included in the President’s FY2013 budget. For more information, see CRS Report R42782, FY2013
Continuing Resolution: Analysis of Components and Congressional Action, by Jessica Tollestrup.
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Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
Table 4. Potential Impact of the BCA’s Automatic Spending Reduction Procedures on Health Reform Spending
Estimated Cost
FY2013-FY2022
Type of Spending
($ billions)
Potential Impact of Spending Reductions
Insurance Coverage Expansion
Medicaid/CHIP
$550
Medicaid and CHIP would both be exempt from a sequestration order.a
Exchange subsidies and related spending
$1,047
Premium tax credit (non-add)
$885
Refundable tax credits available to individuals and families with incomes between 100% and 400% of the
federal poverty level to offset the cost of purchasing insurance coverage through the exchanges would
likely be exempt from a sequestration order.b
Cost-sharing subsidy (non-add)
$155
Cost-sharing subsidies available to certain individuals and families receiving the premium tax credit would
presumably be subject to a sequestration order.
Small employer tax credit
$23
Tax credits available to certain small businesses and small tax-exempt organizations to offset the cost of
covering their employees would presumably be subject to a sequestration order.c
Other Mandatory Spending
>$100d
Mandatory appropriations in ACA would, in general, be subject to direct spending reductions under a
sequestration order. However, for any given fiscal year in which sequestration was ordered, only new
budget authority for that year (including advance appropriations that first become available for obligation in
that year) would be reduced. Unobligated balances carried over from previous fiscal years would be
exempt from a sequestration order.e Sequestration of mandatory spending on health centers and the IHS
would be capped at 2%. Note: the total includes $40 billion in advance appropriations for CHIP (FY2014-
FY2015), which would be exempt from a sequestration order.
Discretionary Spending
≈$100f
ACA-related discretionary spending in FY2013 would, in general, be subject to a sequestration order.
Spending reductions in later years (i.e., FY2014-FY2021) would be achieved through a downward
adjustment of the revised discretionary spending limits.
Source: Table prepared by the Congressional Research Service based on CBO and JCT’s February 2013 baseline budget projections for the Affordable Care Act’s
insurance coverage provisions.
a. Medicaid and CHIP are among the exempted low-income programs listed in BBEDCA §255(h).
b. While the ACA premium tax credits are not specifically exempted from sequestration, BBEDCA §255(d) provides a general exemption for refundable individual tax
credits.
c. BBEDCA §255 does not include smal employer tax credits among the list of programs and activities that are exempt from sequestration.
d. Note that this estimate refers to the 10-year period FY2010-FY2019. It is not possible to determine the total amount appropriated by ACA because several
appropriations are for unspecified amounts (i.e., such sums as may be necessary) or contingent upon a formula or revenues from industry fees. For more details on al
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Budget Control Act: Potential Impact of Sequestration on Health Reform Spending
of ACA’s mandatory appropriations, see CRS Report R41301, Appropriations and Fund Transfers in the Patient Protection and Affordable Care Act (ACA), by C. Stephen
Redhead.
e. An exemption for non-defense unobligated balances is provided in BBEDCA §255(e).
f.
This figure is CBO’s estimate assuming that all ACA’s discretionary spending provisions are fully funded by future appropriations acts. For more details on all of ACA’s
discretionary spending provisions, see CRS Report R41390, Discretionary Spending in the Patient Protection and Affordable Care Act (ACA), coordinated by C. Stephen
Redhead.
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Author Contact Information
C. Stephen Redhead
Specialist in Health Policy
credhead@crs.loc.gov, 7-2261
Congressional Research Service
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